Australian IROs advise on connecting with overseas investors
This week, we hear from Australia-based IR experts Andrew Bowden, head of investor relations at the Westpac Group, Chris Maitland, head of IR at Newcrest Mining, and Justin McCarthy, head of IR at Lendlease. They share their views on the local IR landscape and how they overcome the challenges brought by distance and time zones.
Geographically, where are the majority of your overseas investors based?
Andrew Bowden: Geographically, just over 20 percent of our shares are held outside of Australia and New Zealand, with around one half in North America and a quarter each in Europe – including the UK for the time being – and Asia. If you look just at active investors, it would be more like one third of the register in each of those regions.
Chris Maitland: Broadly speaking, Newcrest’s share registry is geographically broken down into Australia 30 percent, UK 20 percent, Europe 10 percent, North America 35 percent and Asia 5 percent.
Justin McCarthy: For Lendlease it’s the US, Europe and Asia – in that order. In total, approximately a third of our current shareholders are non-domestic.
Are there any areas you’re currently targeting?
JM: This year will see us continuing to target more US investors – they are our largest group of shareholders outside of Australia, but they’re also the most dispersed and the most opaque.
AB: We tend to target investors rather than regions, partly because some of the larger funds operate globally, but it is easier to connect with certain funds. There is no particular international region getting more of our attention.
CM: We find North American investors are more likely to hedge their portfolio against market risk by holding gold exposure either physically, through [exchange-traded funds], or through gold equities. Therefore, as a gold company, we focus more of our attention on North America.
How important is the targeting of non-domestic investors for you?
CM: Non-domestic investors are very important to Newcrest – just under 70 percent of our registry consists of overseas’ shareholders.
AB: We are a large company with a market cap that places us in the top 20 banks globally, so we need to target a global audience. With most domestic investors typically trading around the index, the offshore investor then becomes our largest potential marginal buyer.
JM: It’s important to Lendlease for several reasons. Broadening the investor base is critical for greater diversification. We expect to generate a greater proportion of earnings from our international operations over the coming years and would like to have an investor base that reflects that geographic diversity. Non-domestic investors are often the marginal buyers and sellers of the stock.
What are the main challenges of connecting with global investors?
AB: Proximity and understanding. Australia is a long way from most regions and, because it is a relatively small market, it is not analyzed as closely as some of the larger markets. The other challenge is that most investors have not embraced more digital ways of connecting via phone or videoconference.
They are typically spoilt for choice and while it is relatively easy getting a face-to-face meeting, a videoconference is more challenging. We attempted a virtual roadshow around 18 months ago and it was hard getting any interest, but we get a full dance card when we physically visit a region.
JM: The main challenges are the tyranny of distance, the time zone and knowing which organizations and people within those organizations to target, outside of the top tier.
CM: Distance is an issue. Getting senior executives in front of prospective investors is time-consuming and expensive. Another issue Newcrest faces is that it is covered by sell-side analysts based in Australia, compared with our peers who are covered out of North America.
We find that Australian analysts tend to use 10 percent discount rates when valuing mining companies, yet North American analysts tend to use 5 percent – and this creates a significant difference in valuations. Investors unfamiliar with this difference can run into problems when they compare analysts’ valuations of Newcrest with North America-based gold companies.
What are your top tips for overcoming these challenges, and which have you found to be most successful?
JM: There are three: preparation, engagement and perseverance. In our experience, we’ve found a combination of conferences and non-deal roadshows generates the most successful outcomes.
AB: I think the best strategy is to start with the conferences. It is usually easier to connect at one of these because investors have often allocated their time to the conference, rather than trying to find suitable spots. While I think it will change in the future, the local brokers remain the best way to connect directly in foreign markets – they get the door open.
CM: Be prepared to travel and invest time regularly meeting your overseas investors.
Is the IR landscape changing in Australia?
AB: I feel we are in the middle of a material transition in how we connect with investors globally, and that the new model is not yet clear. So far, digitally connecting is in its infancy and most fund managers are yet to be resourced to manage meetings directly. I think as companies we have to continue to test new ways of connecting, and in some cases retry what we’ve done before.